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The Phasing of Fiscal Adjustments: What Works in Emerging Market Economies?
Author(s) -
Baldacci Emanuele,
Clements Benedict,
Gupta Sanjeev,
MulasGranados Carlos
Publication year - 2006
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2006.00336.x
Subject(s) - economics , fiscal sustainability , revenue , fiscal adjustment , fiscal union , politics , emerging markets , macroeconomics , fiscal policy , monetary economics , finance , political science , law
This paper investigates the political and economic determinants of successful fiscal adjustment in 25 emerging market economies from 1980 to 2001. The results show that large and back‐loaded fiscal adjustments have the highest likelihood of success. Fiscal consolidations based on expenditure cuts increase the probability of approaching and achieving fiscal sustainability but are insufficient to maintain it unless accompanied by revenue reforms. Adjustment episodes launched in countries where governments enjoy a parliamentary majority and do not face imminent elections, are found to be more successful. Fiscal consolidations undertaken under IMF‐supported programs also have a higher probability of success.